How is Insurance Purchased?
Insurance is sold either directly by an insurance company, by an agent representing a particular company or by an independent broker that sells the products of a number of companies. When insurance is sold through an agent or broker, the policy premium includes a commission to the seller.
The best way to buy insurance is through an independent broker that sells the products of a number of companies. This assures that you are getting more than one perspective on the products that are available. If an insurance company sells directly and through agents or brokers, the premiums will be the same no matter which way the product is purchased.
What Insurance Should One Have?
There are many insurance products available. Health Care Professionals should consider these products:
- Medical Malpractice Insurance
- Property & General Liability
- Workers Compensation
- Medicare and Medicaid Fraud and Abuse
What is Medical Malpractice Insurance?
This product, often called Medical Professional Liability Insurance, is a must for every health care professional.
Even the most competent professional can make a mistake and should protect against that possibility. Even Professionals who make no mistakes can be sued. Defending a malpractice lawsuit is often expensive even when the defendant wins. The costs include legal fees, expert witness fees, other expenses and, if a case is lost or settled, the payment. Health care professionals win most malpractice lawsuits, but the legal system rarely allows for the recovery of expenses by the winner. Since the cost of defense is high and a loss can be devastating, this insurance product is essential to every practice.
What is Covered by Medical Malpractice Insurance Policies?
Medical malpractice insurance insures against claims of medical negligence. Most policies also cover your conduct as a member of a peer review panel. This feature protects against lawsuits claiming that an adverse peer review decision made by the insured was inappropriate and caused a loss of income. Some policies provide a dollar amount available to the insured if a lawyer is needed to defend against licensing or peer review proceedings.
Who is Covered?
Medical malpractice insurance coverage should be obtained for yourself, your entity (corporation, Limited Liability Corporation, Partnership, etc.) and your employees.
Coverage is needed for yourself because you are rendering the professional services. If you have a corporation or other entity, it can usually be reached in a malpractice suit because employers are held liable for the acts of their employees. It is important to protect the entity because it holds your business assets such as equipment and accounts receivable. It is important to cover your employees or to require that they maintain their own coverage to assure that their assets are protected.
In solo practice situations, insurance companies generally offer entity coverage sharing policy limits with the health care professional at no extra charge. If there is more than one health care professional in a group, coverage for the entity is usually given its own policy limits and the premium charge is usually about 10% of what all of the insureds in the group are paying.
On physician policies, employee coverage is usually available for nurses and other staff, sharing limits with the employer at no additional premium. However, some employees such as Midwives, Physician Assistants, Nurse Practitioners, and Certified Nurse Anesthetists require individual coverage at an additional premium. Any application completed for Malpractice insurance coverage should detail your employees and you should determine if all you employees are covered.
Are there Exclusions?
All policies contain exclusions detailing conduct that is not covered. Typically, policies exclude coverage of illegal conduct, sexual improprieties, items misrepresented on the application for insurance, hospital or laboratory administration and records alteration.
When completing an application for insurance, it is important to give as complete answers as is possible. It is important to give an insurance company all of the information it needs to underwrite your practice. Insurers rarely verify the information on the application with outside sources. They do not have to because misrepresentations can void the policy.
What are Policy Limits?
Policies specify the most that will be paid for any one claim, the “individual limit,” and the most that will be paid in any policy year for all claims, the “aggregate limit.” For example a policy with limits of $1,000,000/$3,000,000 will provide a maximum of $1M per claim and $3M for all claims during a policy term. The limits that are needed should be discussed with the insurer or your representative. In some states, insureds carry limits are low as $100,000/$300,000. The limits generally taken across the country are $1,000,000/$3,000,000.
What are Claims Made and Occurrence Policies?
There are two basic policy forms offered by medical malpractice insurance companies, claims made and occurrence.
Occurrence coverage is the most desirable form of coverage, but it is not available in all states. An occurrence policy is complete when you purchase it and on cancellation continues to provide coverage for future claims based on conduct that took place during that policy term. The limits that are available to pay a claim are the limits that were in place during that policy term that the service was rendered. Premiums for this product are level except to the extent that a company may increase or decrease premiums over time.
Claims made policies provide coverage only so long as the insured continues to pay premiums for the initial policy and any subsequent renewals. If one is insured by a claims made policy for five years and stops paying premiums, coverage ceases for any cases that the company did not accept during the policy term. To lock in coverage forever under this policy form, an insured must purchase an Extended Reporting Endorsement (called a “tail”). This endorsement allows an insured to continue to report claims after the policy is cancelled. Tail premiums usually range from 100% to 500% of the mature premium (see below) and the premium is usually due as a single payment shortly after cancellation of a policy.
However, one can move between claims made insurers without purchasing a tail. If a professional desires to change insurance companies, often the new insurer will take over the predecessor insurance company’s responsibilities by writing its policy retroactively over the previous insurer. It picks up the retroactive date, the first date of coverage, offered by the previous insurer and charges a premium based on the number of previous years of coverage needed. Claims made policies have premiums that increase annually usually over a period of five years; the fifth-year premium is referred to as the “mature premium.” When writing retroactive coverage, the new insurer’s premium usually does not exceed its mature premium for this specialty.
Many medical malpractice insurance companies offer a free tail if an insured dies, is totally disabled or retires from practice after five years of coverage with that company at a minimum age of 55. If this feature is not included in your policy, you ultimately need to purchase a tail to maintain indefinite coverage after you stop working. Moving from one claims made insurer to another may be difficult for health care professionals relocating to a new state because many malpractice insurers are regional and do not want to assume retroactive coverage out of its geographic area.
(For more on claims made vs. occurrence coverage, see our blog entry “Claims Made Vs. Occurrence Medical Malpractice Insurance Policies” on our blog www.MedMalInsuranceBlog.com)
What Else Do I Need to Know About Claims Made Policies?
In a claims made policy, the limits that apply to a claim are the limits that are in place at the time the claim is made not at the time the services were rendered.
An insured who has switched from one claims made insurer to another must be able to determine which company is responsible for a claim. Claims made polices come in two forms, “incident” or “demand” reporting. In the better form, incident reporting, a claims made insurer is responsible for any incident reported to it during the time that its insurance is in force, even if it does not ripen into a claim until after the policy is cancelled. In this policy form, if an insured has a bad outcome and reports it to the insurer, the company is responsible for any claim that is ultimately made on that incident. In the demand reporting form, the company does not accept as its responsibility anything but claims made during the policy term. A bad outcome is not its responsibility unless it ripens into a claim during its policy term. This inferior product can significantly affect an insured’s ability to change from one insurer to another if there has been a bad outcome that may lead to a claim because insurance companies are not likely to provide coverage to an applicant if they must also pick up a potential lawsuit as part of the package. In this setting the insured is almost always forced to purchase an expensive “tail” endorsement before switching insurers or to stay with the current insurer until a claim is made.
Are There Other Considerations When Selecting An Insurer?
It is important to select an insurer that has the financial strength to survive for the long term. Always ask for a company’s financial rating. There are a number of rating services. The oldest is A. M. Best and Company. Your insurer should have an A. M. Best rating of at least “A-.” This is the range occupied by most solid malpractice insurers, but by itself is not enough to make a decision. Determine how long the insurer has been in business and particularly how long it has been operating in your state. Compare its premium to those of its competitors and obtain a satisfactory explanation if it is too much lower that its competition.
Professionals newly entering private practice often have “new practitioner” discounts available to them. These discounts may vary between companies. Also, many companies offer discounts to professionals who work part-time, have taken a risk management course or have been claims free for a number of years. Make sure to inquire about these discounts if you think you may qualify.
What Else Should I Consider?
This summary of medical malpractice insurance provides an overview of this complicated product. There are many variations. Some companies offer hybrid versions of claims made and occurrence policies. Exclusions vary from company to company. It is important to read your policy and understand its terms. If you are switching insurers make sure the new policy correctly picks up retroactive coverage from the previous insurer. The importance of understanding your coverage cannot be understated.
What are Property & General Liability Policies?
Property and General Liability coverage is essential office coverage. It provides broad protection at a very low cost. Most offices with up to $100,000 in equipment and supplies will be able to obtain this coverage at an annual premium of $500 or less.
This policy protects against many types of damage to or theft of equipment, money, supplies and office improvements. It can also cover against employee dishonesty, losses from accounts receivables that cannot be reconstructed after such things as fire or other damage, and losses to computers resulting from power surges, lightning and the like. One of the most important coverages offered in these policies is “business interruption” which, in better policies, will cover business downtime after a covered loss of use of the office premises by providing funds to maintain ongoing expenses and match the profits of the practice for up to one year.
This policy also covers injuries that occur to others while they are on your premises and protects you against claims of liable and slander. Generally, umbrella coverage can be added to this policy at a low cost to increase the limits of liability covered under this and other polices such as Workers Compensation coverage (but not for Malpractice coverage).
What is Workers Compensation Coverage?
Workers Compensation coverage is usually required by law. It provides protection to employees for on the job injuries. By maintaining this coverage, employers are usually relieved of any liability for such injuries.
The premium for this coverage is based on the office’s total payroll. The laws often allow employers of small business to exclude the owners from coverage. Thus, you can reduce your premium, by excluding coverage for yourself. However, before excluding yourself, assure that your health insurance policy does not exclude job related injuries and illnesses. Also, you may wish to consider maintaining this coverage for yourself if you are exposed to significant hazards in your practice.
What is Medicare and Medicaid Fraud and Abuse Coverage?
The Federal government has stepped up its enforcement of Medicare and Medicaid Fraud and Abuse laws. These laws govern billing the government for procedures under these programs. Billing in excess of what the government considers acceptable can result in significant penalties. Moreover, a government investigation under these rules can be costly even if a physician has fully complied with the rules and as with malpractice, the cost of defense of an investigation can be exorbitant. While this coverage does not rise to the level of “required,” it should be considered by every practice, particularly high volume practices, to cover the costs of legal fees and fines.
As with any overview, this insurance information is general and intended to help you make informed decisions. The actual policies available in your state may contain features not discussed above. An insurance policy is a contract between you and an insurance company. You should read and understand any policy that you purchase. If you have any questions, have the company or insurance broker or agent take as much time as you need to explain policy terms to your satisfaction.